As much as we geek out on resident utility billing here at PayLease, we know that it isn’t the most fascinating topic for everyone. Unless, that is, you are a multifamily operator who is in the midst of moving this task out of your offices and into the hands of a professional. Then, we can attest that it becomes very alluring. Maybe it’s the realization that recouping the maximum allowable utility expenses from residents is about to give their Net Operating Income a major boost. Or, maybe it’s that their staff will no longer spend countless hours trying to manage this process in-house.
Whatever the case, once you start exploring how billing back for utilities can benefit your business, it’s easy to be captivated by some of the value propositions you may hear from potential vendors. While they may seem plausible in theory, these “benefits” often backfire on property managers and end up costing them thousands of dollars, not to mention extra work they didn’t bargain for.
One utility billing model that is rampant with misconceptions is called a bill-and-collect model, or sometimes, read-bill-collect (RBC). If you aren’t sure how these models work, essentially it means that you are entrusting a third-party to be the “face” behind your utility billing program. They calculate each unit’s utility charges, then send residents a bill with their name on it – instead of it being labeled with your management company’s name. Residents pay the vendor directly, and you are reimbursed for these payments several months later. So what can go wrong in this scenario? Here are the common problems utility bill-and-collect models bring multifamily companies.
Myth: Using a vendor who also offers collection services will help ensure high recovery rates
Reality: You’ll see minimal returns because residents are not motivated to pay a third-party
Bill-and-collect models can be enticing because of the collection services that come as part of the deal. No one likes making collection calls, so passing that responsibility off to someone else may seem tempting. Bill-and-collect vendors usually assess late fees to residents who don’t pay their utility invoice on time, and may even follow up via phone or email when payments haven’t been made. But the reality is that when you direct residents to pay a third party, there are no serious consequences for skipping a payment. Residents may get hit with a late fee for not paying on time, but that’s the only recourse. Legally, they can’t be evicted by not paying their utility bill, nor will they be turned over to collections. Your best bet is to make residents pay you directly, which is how resident billing models are structured. This raises the stakes for a resident to not pay on-time and property managers see more on-time and in-full payments.
And just like there’s not a real motivation for residents to pay, there’s also no motivation for the bill-and-collect company to recoup those delinquent funds. They make money from the property management company every time a late fee is assessed. The more delinquencies there are, the more money they make, and the less the property management company receives. So even though collection services are part of their package, don’t be fooled. It’s not in their interest to collect, and therefore not going to benefit your bottom line.
Myth: If residents get their utility bill from a third-party, they’ll direct all their billing questions (and potential frustrations) at them and not our property management company.
Reality: Residents know the property management company is behind the bill. So if they are mad or have questions, they’re going to come to you.
This is mostly applicable for companies who have never billed residents for utilities before. If you are about to start charging residents for their utility consumption, you may have some apprehension about how they will react to the new norm of getting a utility bill each month. You are probably worried that it might impact resident satisfaction. It’s easy to rationalize that you can dodge unpleasant conversations with residents by enlisting a third-party to take over all aspects of utility billing. There’s a common perception that if residents are unhappy about their utility charges they will take out their frustrations on the biller, not the property manager.
But residents know that the bill is ultimately coming from their property management company. And if they have a question, they’ll turn to the person they already have a relationship with: their property manager (not the billing company). So expect your on-site staff to get the same number of questions or complaints as they would as if this bill had your logo on it.
Myth: A bill-and-collect provider will relieve you of all the nitty-gritty aspects of utility billing.
Reality: In the end, service model flaws end up putting time-consuming work on the property management company.
Utility billing is a tedious process, which is why so many property managers turn this over to a third party. But if you’re under the assumption that a bill-and-collect service will allow you to wash your hands clean of this responsibility, think again.
For one, at some point you’ll need to track down information on a payment, or perhaps, what your recovery rate was. Unlike resident billing models, which offer integration with your property management software, bill-and-collect data is tracked manually. That means that whenever you need to research anything, you’re going to spend a few hours digging through spreadsheets or trying to navigate the bill-and-collect vendor’s portal to find what you need.
And, as we mentioned above, the collection efforts that are promised are minimally effective. So if you want to boost your meager recoupment rate, be prepared to take on collection efforts yourself. Residents are more likely to make a payment if they have their property manager knocking on their door, so in the end, your staff will be making plenty of collection calls.
If you want to know more about the disadvantages bill-and-collect service models can bring to multifamily companies, download our ebook, Multifamily Utility Bill-and-Collect Schemes Exposed. It will give you a deep dive into the financial and operational impacts this can have on your properties and why Resident Billing programs are better suited.
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